Older managers are busy explaining to youngsters that they’ve seen it all before. Forget 2001 – GDP slowed to 2 per cent growth then, this year we’re down 2 per cent.
Now 1991 was a real downturn, with seven quarters of decline (we’ve had just two so far this time). Then there was 1980/81, with six quarters of decline.
If you’re as old as me, you’ll remember 1974/75, with GDP declining over eight quarters. Admittedly I was still at school, but you don’t forget doing homework by candlelight.
So is there anything to learn from this reminiscing? Well, recessions tend to last between 18 months and two years. So, as we’re six months in, we should expect demand to continue to fall for the next year to 18 months, say to mid- or late 2010.
If past experience is a guide, there then follows a year of anaemic growth of about 1 per cent. So that puts us back at the usual long-term UK growth rate of 2 per cent per annum in late 2011. Since we would have had two years of 2 per cent annual decline, it may well take until 2013 until absolute GDP recovers to the same level as last year.
But this recession isn’t like the others. 1994 and 1989 were triggered in part by massive and sudden increases in oil prices. Oil also featured in 1991 (the Gulf War, remember?).
But the present recession was kicked off by bankers losing all their inhibitions, resulting in the mother of all credit crunches. My old economics textbook – still with wax stains – noted that the bottom of the economic cycle causes banks to have “surplus cash that no one whom they consider a reasonable credit risk wishes to borrow”. Do I hear hollow laughter from the high streets of Britain?
So we are in uncharted waters. However, surely this lack of credit will make a recovery more difficult and more protracted. The Government is doing its best to restore demand, but Gordon Brown must feel like King Canute with rising water washing round his knees.
What’s the message for retailers? Hunker down, expect more gross margin pressure and falling discretionary demand, cut costs and conserve cash… exactly as I’m sure you’re already doing.
But don’t put off difficult decisions because it will all be back to normal next year. And when you plan ahead to those sunny days of buoyant demand and rising margins, history suggests that you’d better put those dreams in the spreadsheet columns headed 2012 and 2013.
Simon Laffin is an adviser to private equity and non-executive director